The Indian Industrial Security Market is based on two factors, i.e. Stock Exchange and New Issue Market. Hence, it deals with top-notch Indian securities, not available previously for public investment.
More precisely, the New Issue Market is the securities, which are open first-time for public investment. In short, it is regarded as Primary Market. It functions as a consequential and direct link between the organizations that need a quick provision for public and funds investment.
So, in today’s article, we will precisely discuss the New Issue Market, its functions, top methods of floating new issues. Let’s get started!
Primary Market – The New Issue Market
Primary market implies the establishment by which an industry collects funds by providing diverse securities. Such securities are directly supplied to institutional and individual investors. However, the primary market releases the significant function of savings transfer. More accurately, it releases critical functions of Government, individual bodies, and public sector undertakings.
Therefore, the brand-new issues of securities are represented in the private placements and right issues, the basic form of the public issues in the primary market. Its effective operation could become possible by the financial institutions and financial intermediaries. They can efficiently organize long-term financial transactions for the top clients.
What Does New Issue Market Deal With?
As mentioned earlier, the New Issue Market deals with top-notch securities. These are mainly offered for the first-ever time to the investing public. Therefore, the New Issue Market or the primary market brings innumerable and new blocks of securities for significant public subscriptions.
All the necessary financial institutions that can underwrite, contribute, and at first hand subscribe to the securities are the mandated part of this New Issue Market. However, various intermediaries are there, such as custodians, registrars, and merchant bankers. They are directly involved in this crucial activity of issuing new market securities.
Major Functions of New Issue Market
As far as the crucial functions of the New Issue Market are concerned, these include the facilitation of the transfer of top resources from savers to the primary users. Therefore, the users are government and public limited organizations.
The savers are commercial banks, individuals, and insurance firms. Hence, it is not just a simple platform for finance collection to set up brand-new companies. Instead, it is for diversification or propagation, or advancement of the existing units.
The crucial New Issue Market could be categorized as:
- A market where organizations that are trading boost extra capital via seasoned equity offering or SEO.
- A market where organizations move to the public via IPO or the Initial Public Offering for the first time.
The leading functions of a brand New Issue Market could be segmented into triple service functions:
|Underwriting||It is a necessary covenant whereby the underwriter pledges to subscribes to particular debentures or a share number or a specific stock amount in the public event not subscribing to the issue. An Underwriter will not be liable if the issue is completely subscribed. On the contrary, the underwriter will purchase the shares if a major part of the share issues stays unsold. This is how underwriting is a serious warranty for share marketability. Institutional such as IDBI, LIC, ICICI, and UTI and the Non-institutional brokers are examples of two types of Indian underwriters.|
|Organization||It mainly refers to the investigation work, evaluation, and processing of brand-new project proposals. It inaugurates prior to any issue is come forward in the market. However, the function is performed by renowned merchant bankers, including all Indian financial institutions, commercial banks, or private firms. Presently, private organizations and financial institutions also execute this service. As this service is essential, the major success of the issue relies on the market effectiveness to a large extent.|
|Distribution||Distribution is mainly referred to as the function of the sale of securities to the ultimate investors. Such a service is executed by the stock market brokers and agents who share daily and direct contact with the investors.|
Leading Methods of Floating New Issues
The top 3 distinct methods are there, which are mainly used in the New Issue Market in the flotation of securities:
The brand new issue brokers or houses purchase securities under this method outright to place them with their credible clients. In this case, the brokers are the wholesalers and they kind of act like them for selling in retail to the public.
This is how the brokers are raising profits after reselling to the public. The brokers of the New Issue Market maintain their detailed list of clients and sell the securities via customer contact. Therefore, there will be no requirements for a formal prospectus in the underwriting covenant.
2. Public Issues
The issuing organization directly offers the public institution’s fixed share numbers under this method at a given price via a prospectus document. Hence, it is the most prevalent method for joint-stock organizations to build capital via securities’ issues. However, the prospectus should narrate the following:
- Company’s name
- Industry location
- Director’s names
- Registered office address
- Proposed and existing activities
3. Rights Issue
It is a powerful strategy of fundraising in the share market by an existing organization. Here, a right indicates a crucial option to purchase definite securities at a specified privileged price within a specific period.
Right shares are known as those shares offered to the existing shareholders. More importantly, these are given to them at a particular rate to their existing share ownership. On the other hand, the ratio in which the top shares are given to the existing capital will rely on the capital requirement.
However, such rights are saleable and transferable in the share market. In brief, there would never be any underwriting, advertising, brokerage charges, and printing of prospectus expenditures. Hence, it safeguards the directors from issuing top shares in their relative’s or self-names at a significantly lower rate.
Hopefully, you have gained a complete notion of this New Issue Market and can briefly elaborate on the profound criteria. If you have any questions in mind, kindly let us know by commenting below! We will be happy to help!